The Pinko Path: On Peru Joining Latin Left's Ranks

It's somewhat odd that the whitebread commentariat hasn't made more of this event, especially since it's happening in their own backyard. While dependencia theory of Latin American countries becoming pliant and fertile grounds for Western exploitation may have gone out of fashion in academic circles, the same does not necessarily hold with Latin American leadership struggles. In the run-up to the seventies when dependencia theory was in full bloom, you had the likes of Jacobo Arbenz in Guatemala and Salvador Allende in Chile whose political fates were--how do I put this--eased along by American intervention. Curiously enough, when leftist ideologies were supposed to have gone out of style, we have seen in the past few years the emergence of several new figures on the Latin left. The questions remain the same as ever: should we promote local industry or welcome foreign extractive concerns? Is there a way to reconcile both objectives to promote development? The faces may change but the essential issues remain the same.

Sure, the brothers Castro had their share of (short-lived) ideological peers over the intervening years. However, it is only in more recent decades that we have witnessed the rise of Hugo Chavez in Venezuela, Evo Morales in Bolivia, Daniel Ortega in Nicaragua, and Rafael Correa in Ecuador. (Prior to Fernando Henrique Cardoso becoming president of Brazil, he was one of the foremost dependencia authors, but turned out to be rather neoliberal upon assuming office.) And so it is that in this alleged twilight time for the Latin left that we have another potentially joining its ranks with the recent election victory of Ollanta Humala in Peru, stock-in-trade socialist firebrand rhetoric in hand.

Without a doubt, certain parts of the Andean business community are running scared as markets have reacted quite negatively:

Shock waves from leftist Ollanta Humala's victory in Peru's Sunday presidential election rattled stock markets and corporate suites around Latin America, as investors girded for the possibility of sweeping changes in one of the region's star economies. Peruvian stocks fell a record 12.5% on fears over increased government intervention in the economy after Mr. Humala's defeat of conservative Keiko Fujimori on Sunday [daughter of controversial former President Alberto Fujimori]. Nervousness also roiled shares of companies throughout the region with Peruvian investments, such as Grupo Mexico, a huge copper producer, and LAN Airlines, a Chilean based regional air carrier...

One of Mr. Humala's economic advisers, Kurt Burneo, tried to reassure markets that Mr. Humala wouldn't spoil an economic formula that has produced 12 consecutive years of growth. "I totally reject that a fiscal binge could happen," Mr. Burneo told Peruvian radio. He said Mr. Humala would be committed to maintaining growth and investment in order to fund his plans for greater social spending. "One point of growth of output generates an increase of 1.2% in tax revenue, thus it's key to continue growing, " Mr. Burneo said.

Mr. Burneo, a former vice minister of the economy in the centrist government of former President Alejandro Toledo who is well-liked by investors, underlines the questions surrounding Mr. Humala's government. Mr. Burneo joined Mr. Humala's campaign in the runoff race after Mr. Toledo was eliminated in the first round of voting, and it is unclear whether he represents Mr. Humala's current philosophy.

Analysts say there is often dissonance between the more moderate advisers who joined Mr. Humala after the first round and the more left-leaning ones who began with him. In a television interview Sunday, Felix Jimenez, a left-leaning economist who is part of the original Humala team, was still defending the interventionist 197-page governing proposal by Mr. Humala that spooked investors during the first voting round. That plan was replaced with a more mainstream five-page plan in the runoff.

So many years after, it's back to debating dependencia:

The Peru election is reviving an ideological debate that had seemed to be settled in Latin America between the largely market-oriented economies of Peru, Brazil, Chile and Uruguay ,and the more populist ones of Venezuela, Ecuador, Nicaragua and Bolivia. The latter seemed on the decline in recent years, beset by faltering economies and growing domestic political headaches, while the former grew more strongly and consistently. In 2005 to 2010, per capita gross income in Peru rose 82%, to about $5,200. Peru has roughly halved the poverty rate to just above 30% over the past decade.

But Mr. Humala's win is prompting some soul searching about the flaws in Peru's economic model, governing institutions and political elite. Analysts said Mr. Humala capitalized on the persistence of rural poverty, the broad distrust Peruvians feel towards traditional politicians and institutions and divisions within the centrist political establishment that kept it from settling on a single candidate to oppose Mr. Humala, who lost a prior presidential bid.

It was, to be sure, something of a surprise to Peruvian elites and observers of the country's political scene:

"For some observers, the idea of an Humala victory in 2011 was inconceivable," said Maxwell Cameron, a political scientist at University of British Columbia. "If he lost in 2006, surely he would win even fewer votes in 2011 after another five years of growth. However, he added, "It was precisely this overconfidence that led the center-right to fail to unify behind a single candidate with broad appeal." Moreover, "After five years of growth, prosperity remained unequally distributed and heavily concentrated in the coast and major cities..."

A paper written a few years ago by Julio Carrion, a political scientist at the University of Delaware, sums up the paradox in Peru between high growth and widespread public dissatisfaction. The title: "It isn't the Economy, Stupid. Economic Growth Does Not Reduce Political Discontent in Peru."

Poverty and inequality were accountable for part of the problem, he wrote, but not all of it. Another issue, he wrote, is Peruvians lack of faith in government and public officials. In a survey last year by Latinobarometro of Chile, Peruvians ranked the lowest of 19 nations in the region in their confidence, in Congress, political parties, and the courts. About one-fifth of the members of Peru's Congress have been caught up in scandals, by the count of a local newspaper...

Mr. Humala, a former military officer, cast himself as the anti-politician. He emerged in the public eye in 2000 when he led 60 troops in an uprising against Alberto Fujimori in an isolated mining town. The act was largely symbolic, but it catapulted Mr. Humala into prominence. Moving forward, [political consultant Hugo] Santa Maria told a conference call of investors that economic growth for the second half of 2011 could decline to 4% to 4.5% from around 7% due to investors' caution over Mr. Humala. "A slowing down of private investment...will slow down the economy," he said.

So, a previous Latin American high-flyer is in danger of stalling. Mining giants operating in the country are already thinking twice, for instance. Will Humala be a Lula de Silva (a former activist turned pro-investment figurehead; they apparently have lots of them in Brazil) or a Hugo Chavez (an erstwhile mentor of his)? It was not so long ago that Lula was regarded with healthy suspicion, yet he turned out to be quite progressive in trying to reconcile social activism with welcoming enterprise. Commentators suggest Humala has learned from his 2006 run when his Chavistic stylings scared off many voters, and that he now intends to be more Lula-like. (The stock market rebounded Tuesday.) His appointments for central bank governor and finance minister represent early opportunities to assuage fears.

Yet, it again begs the question about the foundational stability of rapid but unequal growth in LDCs. So many times you see trickle-down failing to do its thing despite reasonably healthy growth rates. It's certainly something for libertarians and their ilk to ponder.

But with all that comes a blessing of sorts: a side benefit of the Cold War ending is that Washington no longer sees the need to pull the strings in its backyard in fear of Soviets gaining a foothold in Latin America. Despite the appearance of various regimes casting a baleful eye towards Washington--we want to be self-sufficient, go away American imperialists, etc--the old will to meddle in this part of the world is not what it once was.

UPDATE: Markets are being further assuaged by credit rating agencies stating no downgrade is imminent, but geez, isn't it too soon to comment after such recent elections?